US budget brinkmanship threatens world economy

TIM PALMER: To Washington where despite warnings of disastrous economic consequences, the Republican speaker of the House has dramatically wound up the tension in the congressional stalemate by saying he will not pass a debt limit increase without concessions from the president.

The deadline for raising the debt ceiling falls in 10 days' time. Last week the US treasury secretary and the head of the International Monetary Fund both warned that any debt default by the United States would be catastrophic not just for the US economy but also the world's.

North America correspondent Michael Vincent reports.

MICHAEL VINCENT: After almost a week the US government is still shutdown at an estimated price of $300 million a day. Now an even more potentially costly fight is opening up - America's credit limit.

Republican speaker John Boehner:

JOHN BOEHNER: The votes are not in the House to pass a clean debt limit. And the president is risking default by not having a conversation with us.

MICHAEL VINCENT: Last week sources in John Boehner's office were quoted widely in US media saying he would not risk a default.

However this is the same speaker who had said president Obama's re-election meant his health care reforms were the law of the land and he's also said he would not shut down the government.

John Boehner:

JOHN BOEHNER: It is time to deal with America's problems. How can you raise the debt limit and do nothing about the underlying problem? We've spent more than what we've brought in for 55 of the last 60 years.

This year the federal government will have more revenue than any year in the history of our country and yet we're still going to have a nearly $700 billion budget deficit. We are squandering the future for our kids and our grandkids by not dealing with this problem.

MICHAEL VINCENT: But US treasury secretary Jack Lew says the Congress should just do its job of paying America's debts. He says they're well aware that the US ran out of money in May.

JACK LEW: Since May we've been creating some room to borrow by using what are called extraordinary measures. They've been used so many times they're not as extraordinary as they used to be.

Tuesday I wrote to Congress saying I'd used my last extraordinary measures - I have no more. That means that on October 17 we will run out of the ability to borrow.

MICHAEL VINCENT: And to reinforce the bizarre place that US politics finds itself in, Democrats are taking to quoting Republican president Ronald Reagan.

Jack Lew:

JACK LEW: It really captures very much what I think the risk is, and I quote: "The full consequences of a default or even the serious prospect of default by the United States are impossible to predict and awesome to contemplate."

MICHAEL VINCENT: Jack Lew says the full faith and credit of the US will soon be on the line.

JACK LEW: Why would anyone take a risk with those kinds of consequences when it's really just a question of letting a majority vote?

MICHAEL VINCENT: Democrats say there are enough moderate Republicans to get a bill passed on both the temporary budget measures to reopen the government and raise the debt ceiling, but speaker Boehner won't risk such a vote.

One vote which did pass the Congress at the weekend unanimously: public service back payments. So for now federal workers cannot come into the office and must remain at home on full pay.